Overview of costs and benefits associated with regulation in Scottish agriculture

3. SSI 2005 No. 348 Water Environment (Controlled Activities) (Scotland) Regulations 2005

Abstract

This case study focuses on the Water Environment (Controlled Activities) (Scotland) Regulations as they apply to agriculture. These regulations were introduced in 2005 as part of the process of implementing the Water Framework Directive in Scotland. The regulations establish a framework for the control of the activities impacting on the water environment, notably: abstraction; impoundment; and activities liable to cause pollution. The regulations seek to achieve their aims through three tiers of control: general binding rules; registration; licensing.

The appraisal of the regulations illustrates the difficulty of weighing up the costs and benefits of individual policies. The impact assessment approach treats each regulation as if it were a stand-alone measure, however, the CARs are part of a wider strategy designed to improve the water environment through integrated river basin management. It is therefore necessary to look at the overall performance of the strategy that the CARs are a part of. This will be done with the RBMP which is being subject to an RIA presently and will be published in draft form for consultation, alongside the RIA, at the end of 2008. Early evidence suggests that the regulations are performing well, however they should be kept under review to ensure that any lessons arising can be incorporated.

Introduction

SSI 2005 No. 348 Water Environment (Controlled Activities) (Scotland) Regulations 2005 (hereafter referred to as the CARs) is one of the legislative tools being employed to meet the requirements of the Water Framework Directive ( WFD) (see table 1).

Table 1 WFD-related legislation
Legislation	Purpose
Directive 2000/60/ EC of the European Parliament and of the Council establishing a framework for the Community action in the field of water policy (The Water Framework Directive - WFD)	Article 11: • prevent deterioration of water body status • protect, enhance and restore water bodies with the aim of achieving good status by 2015 • progressively reduce pollution of water bodies from priority substances and to cease or phase out emissions, discharges and losses of priority hazardous substances.
Water Environment and Water Services (Scotland) Act 2003 ( WEWS)	Transposed the WFD into Scots Law and began the process of implementing the WFD in Scotland. Section 20 gives Scottish Ministers powers to control activities for the purpose of protecting the water environment.
SSI 2005 No. 348 Water Environment (Controlled Activities) (Scotland) Regulations 2005 ( CAR)	The CARs bring into effect section 20 of the WEWS to control certain activities adverse impacts on the water environment: water pollution; abstraction; impoundment; building/engineering works; artificial recharge or augmentation of groundwater
2007 No. 219 The Water Environment (Controlled Activities) (Scotland) Amendment Regulations 2007	Amend Schedule 3 of CARs, adding new GBRs relating to: (i) the removal of sediment from the beds of rivers, burns or ditches and its return; (ii) the placement of boulders in a river or burn; (iii) the temporary abstraction of ground water; from construction sites, maintenance works, or for the extraction of geothermal energy.
2008 No. 54 The Water Environment (Diffuse Pollution) (Scotland) Regulations 2008	Add GBRs to the CARs relating to the control of diffuse pollution, and amend Regulation 3 of SSAFO to provide for alternative means of disposal of certain types of slurry and silage effluent.

According to (Scottish Executive Environment Group (2005)), the WFD and CAR in particular affect some 240 existing policy and legislative requirements. In particular, the CARs affect the following:

• Control of Pollution Act 1974
• Groundwater Regulations 1998
• Pollution Prevention and Control 2000
• The Water (Scotland) Act 1980

The CARs supersede and replace several existing regimes, thereby simplifying the legislative framework for the management of activities in the water environment. While the CARs provide a framework for addressing diffuse pollution, separate regulations for dealing with diffuse pollution were introduced in 2008 (see table 1). Similarly, specific regulations governing private water supplies were introduced in 2006.

The primary aim of the CARs "is the establishment of a holistic framework to provide for controls over all activities having an impact on Scotland's water environment." (Scottish Executive Environment Group (2005, p3)). Specifically, the CARs bring into effect section 20 of the WEWS in order to control:

• activities liable to cause pollution of the water environment

• abstraction of water from the water environment

• the construction, alteration or operation of impounding works in surface waters or wetlands

• carrying out building, engineering, or other works in inland water other than groundwater, or wetlands, or in the vicinity of inland water or wetlands, and likely to have a significant adverse effect on the water environment

• artificial recharge or augmentation of groundwater

Scottish Executive Environment Group (2005, p3)

Authorisation

The CARs seek to achieve their aims by making provisions for 3 tiers of control: general binding rules, registration and licences. The three tiers of authorisation were developed by SEPA in consultation with stakeholders, in an attempt to create a more proportionate and risk-based approach to regulation. The three tiers are summarised below and in table 2:

"General Binding Rules cover the majority of activities, and are the least burdensome in that they have no associated charges or inspections and essentially rely on meeting good practice. Registrations allow SEPA to collate information on cumulative pressures and impacts on the water environment, and have associated application fees. There are no subsistence charges or inspections. Licences are required for activities of greatest risk to the water environment and have associated application fees and subsistence charges." (MacDonald 2007)

Table 2 CAR tiers of control (Adapted from: Scottish Executive Environment Group (2005); SEPA (2006))
Tier of authorisation	Description	Farm activities covered
General Binding Rules	Intended for low risk activities, unlikely to represent a cumulative impact, no requirement to contact SEPA No charge	Abstractions of <10m 3 a day for activities such as pesticide spraying and livestock watering e.g. for <110 dairy cows in milk
Registration	Intended for relatively simple activities where cumulative impacts are likely, operators supply SEPA with a description of the controlled activity, SEPA may impose limited constraints One-off application charge but no subsistence charge	Abstractions >10 & <50m 3 a day for activities such as livestock watering, e.g. >110 dairy cows in milk
Licenses	Intended for activities posing the greatest risk. A licence authorises a responsible person to undertake the controlled activity. They can be simple (i.e. standard) or complex (site specific). One-off application charge and ongoing subsistence charge	Waste Sheep dip disposal to land Abstractions >50m 3, e.g. irrigation: the typical pump abstracts 1200m 3 in 24 hours and will require a licence

Analysis

The CARs RIA's main focus is on the costs and benefits of the CARs, rather than on the longer term compliance costs of the WFD river basin management process (these will be assessed in the forthcoming RIA of the river basin management plan which is due to be published in draft form for consultation at the end of 2008). Four options were considered in the CARRIA (see table 3).

Table 3 SEPA forecasts for the total number of activities authorised by the different

mechanisms provided for in the options considered in the RIA (adapted from Scottish Executive Environment Group (2005)

Option A: Point source pollution (~100,000 discharges) would continue to be controlled by SEPA under Co PA. Controls on other activities(~45,000, mainly abstractions) would not be introduced until 2009
Authorisation mechanism	Directly by a General Binding Rule in the Regulations	Registrationwith SEPA	Registration with SEPA under a General Binding Rule	Licensed bySEPA
Option B: The proposed Regulations, as produced following SEPA's consultations in April 2004 and March 2005	50,000	80,000	n/a	15,000
Option C: All controlled activities would as a minimum have to be registered with SEPA. Medium risk activities would have to be registered and comply with general binding rules. Large scale and high risk activities would require authorisation under the conditions of a licence issued by SEPA	n/a	100,000	30,000	15,000
Option D: All activities falling under the scope of the Regulations would need to be licensed by SEPA.	n/a	n/a	n/a	145,000

Option B was recommended because it was thought to "offer the appropriate balance between the administrative costs incurred by water users and the provision of effective controls for the protection of the water environment" (Scottish Executive Environment Group (2005, p35)). The predicted costs and benefits of option B are set out in Appendix A, and summarised in table 4.

Table 4. Summary of the costs and benefits of option B (as per the proposed regulations) given in the RIA (Scottish Executive Environment Group 2005).
Benefits	Value
Prevents deterioration of the status of the water environment from 2006 onwards.	Not quantified
Improvement measures needed by 2012 phased in from 2006.	Not quantified
Reduction in uncertainty for business compared to option A.	Not quantified
Provision of the information on abstraction and impoundment pressures necessary target the monitoring programmes and establish a programme of measures and set objectives in time for inclusion in the river basin management plan in 2009.	Not quantified
Environmental monitoring and river basin planning costs attributable to abstraction, impoundment or engineering pressures would be recovered from water users from 2006 onwards reducing the burden on the public purse.	Not quantified
A large number of small scale and low risk activities, such as all abstractions of less than 10 m 3 a day, would be authorised directly by the Regulations, in contrast to options C and D.	£0.5-1.0m
There would be no administrative costs for operators of significant numbers of small scale and low risk activities, since applications for authorisation from SEPA would not be required.	Not quantified
Costs	Value
Direct costs incurred by SEPA implementing CARs in the period 05/06 - 09/10.	£3.5m pa
Regulatory costs would be incurred, and recovered by charging water users, from 2006 rather than from 2009 as in Option A.	~£3.5m pa for 3 years
Business administrative costs: low in respect of 80,000 activities, and medium-high costs in respect of 15,000 activities.	Not quantified
Business compliance costs: "conditions requiring any significant changes to existing operational practice would not come into effect until 2012" Scottish Executive Environment Group (p33, 2005) the only condition likely to come in before then is the requirement to provide info on the abstraction size ; GBR and registration - low/no cost; for licensed abstraction, costs could be up to £300 (100m 3/day) or £5000 (100,000m3/day) - this larger volume won't apply to any farms.	Not quantified, apart from cost of providing abstraction size
This Option would not require registration for a range of small scale and low risk activities, such as abstractions of less than 10 m 3 a day. To identify those situations where there may be a risk of cumulative impacts from such activities and to take account of the needs of these activities in making its regulatory decisions, SEPA would have to use other means to obtain information on the location of these activities.	Not quantified, but likely very low

Comment on the RIA

The RIA was widely consulted on publicly before being debated and agreed by the Scottish Parliament. Valuation in the RIA is partial, with some of the costs and benefits quantified and valued. Some costs and benefits are discussed relative to different baselines. In theory, each option should be appraised relative to a consistent counterfactual scenario, however it is recognised that this is difficult; IVM (2005, p37) concluded that "The construction of counterfactual scenarios is probably one of the main challenges in estimating the cost of environmental legislation." A clear counterfactual scenario is nevertheless important for a robust assessment of costs (or benefits). The "do nothing" scenario was not presented as an option, as doing nothing would have led to infraction proceedings, however Impact Assessment guidance allows for options to be appraised relative to a "do minimum" scenario, in this case Option A. The lack of valuation and lack of appraisal of the costs and benefits relative to a consistent counterfactual makes it difficult to assess the overall efficiency of the CARs. However, it should be noted that RIA was part of an ongoing process and a draft River Basin Management Plan ( RBMP) will be published in December 2008. The RBMP will be accompanied by a full Impact Assessment which will assess the costs and benefits associated with the Plan.

Conclusions

The perceived costs and benefits of a regulation are often different from the actual costs and benefits, and it can be problematic when the costs are more immediately apparent than the benefits. This case study illustrates the difficulty of weighing up the costs and benefits of individual policies. The impact assessment approach treats each regulation as if it were a stand-alone measure, however, individual regulations are often part of a wider suite of interdependent policy measures, which are designed to achieve a collective goal. As IVM (2005, p37) note "environmental policy measures are always one element in a complex system and it will always be difficult to isolate the impact of that particular element from the rest of the system". This is the case with the WFD, in which the CARs are part of a strategy designed to improve the water environment through integrated river basin management. So, while the short-term, direct costs/benefits arising from the application of the CARs to agriculture are important, such measures should ultimately be appraised in the context of the costs/benefits of the higher order policy objectives they enable (i.e. provision of environmental benefits in the medium to long term and the avoidance of expensive infraction proceedings). This can make it difficult (and misleading) to attribute benefits to individual policy measures. Instead, we need to look at the overall performance of the strategy that the CARs are a part of. This will be done with the RBMP which is being subject to an RIA presently and will be published in draft form for consultation, alongside the RIA, at the end of 2008. Early evidence suggests that the regulations are performing well, however they should be kept under review to ensure that any lessons arising can be incorporated.

References

IVM (2005) Ex-post estimates of costs to business of EU environmental legislation: Draft final report, Amsterdam: IVM

MacDonald, C. (2007) Single Environment and Rural Service ( SEARS)

Information on SEPA's Activities: Annex 3 Regulatory tables for Agriculture Stirling: SEPA

Moran, D. and Dann, S. (2007) The economic value of water use: implications for implementing the Water Framework Directive in Scotland Journal of Environmental Management 87 (3), p.484-496,

Scottish Executive Environment Group (2005) The Water Environment (Controlled Activities) (Scotland) Regulations 2005: Policy Statement and Regulatory Impact Assessment May 2005 Paper 2005/10 Edinburgh: Scottish Executive ( http://www.scotland.gov.uk/Publications/2005/05/0995747/57525)

SEPA (2005) Abstraction Examples 15 December 2005 Stirling: SEPA

SEPA (2006) Important Information for Farmers, New Controls in Relation to the Water Environment Stirling: SEPA

SEPA (2008) The Water Environment (Controlled Activities) (Scotland) Regulations 2005 A Practical Guide Version 5 June 2008 Stirling: SEPA

Appendix A. Costs and benefits of option B (as per the proposed regulations) (Scottish Executive Environment Group (2005, p37)).

Benefits

Costs

• SEPA would be able to prevent deterioration of the status of the water environment from 2006 onwards; • Water users would be able to phase in any improvement measures needed by 2012 from as early as 2006, depending on the date their authorisation under the Regulations was reviewed by SEPA; • The compliance conditions required of water users would be identified from as early as 2006. This would reduce the period of uncertainty for businesses compared to Option A and provide time for businesses to plan, and raise finance for, the necessary improvements; • Applications for authorisation would provide SEPA with the information on abstraction and impoundment pressures necessary to most effectively target the monitoring programmes for the first river basin planning cycle; • Applications for authorisation would provide SEPA with both the information on abstraction and impoundment pressures and the regulatory process necessary to establish a programme of measures and set objectives in time for inclusion in the river basin management plan in 2009; • Environmental monitoring and river basin planning costs attributable to abstraction, impoundment or engineering pressures would be recovered from water users from 2006 onwards reducing the burden on the public purse; • A large number of small scale and low risk activities, such as all abstractions of less than 10 m3 a day, would be authorised directly by the Regulations. In contrast to Options C and D, SEPA would not incur any costs associated with processing applications for authorisation for such activities. SEPA would be able to focus its regulatory resources on larger scale and high environmental risk activities; • There would be no administrative costs for operators of significant numbers of small scale and low risk activities, since applications for authorisation from SEPA would not be required

• Total financial cost of regulations: £18 million for regulation by SEPA in the period 05/06 - 09/10; plus negligible administrative costs in respect of 80,000 activities, and medium-high costs in respect of 15,000 activities; • Regulatory costs would be incurred, and recovered by charging water users, from 2006 rather than from 2009 as in Option A; • This Option would not require registration for a range of small scale and low risk activities, such as abstractions of less than 10 m3 a day. To identify those situations where there may be a risk of cumulative impacts from such activities and to take account of the needs of these activities in making its regulatory decisions, SEPA would have to use other means to obtain information on the location of these activities.